2009 (2) TMI 630 - AT - Central Excise

Cenvat/Modvat - Capital goods - simultaneous availment of CENVAT credit as well as depreciation - availment of double benefit

Summary

Issues:
Claim of credit on duty paid on capital goods/spares by assessees engaged in the manufacture of cotton yarn. Disallowance of credit amount and penalty imposed by Deputy Commissioner. Appeal by assessees leading to setting aside of denial of credit and penalty by Commissioner (Appeals). Revenue's appeal against Commissioner (Appeals) decision.

The judgment pertains to the claim of credit on duty paid on capital goods/spares by assessees involved in cotton yarn manufacturing. The assessees initially took credit of duty paid on capital goods/spares in November 1996, with a declaration not to claim depreciation under Section 32 of the Income Tax Act on the duty-paid portion of the goods. However, in their Income Tax Return for the same period, they deducted the amount representing the duty on capital goods. Subsequently, a show-cause notice was issued proposing disallowance of the credit amount and recovery of Rs. 1,07,455, along with a penalty. The Deputy Commissioner disallowed the credit and imposed the penalty under Rule 57U(3) of the Central Excise Rules, 1944.

Upon appeal by the assessees, the Commissioner (Appeals) overturned the denial of credit and penalty, reasoning that although the assessees had initially claimed credit and depreciation, they later deducted the duty element in the subsequent year's Income Tax Return. This deduction indicated that the depreciation, though initially claimed, had not been availed, thus negating the possibility of the assessees receiving a double benefit. The Commissioner (Appeals) also relied on a letter from a Chartered Accountant dated 23-4-2001 supporting this position.

The Appellate Tribunal, after hearing both sides, upheld the Commissioner (Appeals) decision. The Tribunal noted that while the assessees had claimed depreciation in the same year they availed credit, the revised return filed in the subsequent year indicated that the depreciation had not been availed. Consequently, the Tribunal rejected the Revenue's appeal, concluding that the assessees had not claimed both depreciation and credit to obtain a double benefit. The cross appeal filed by the respondents in response to the appeal was also rejected by the Tribunal.

In summary, the Tribunal affirmed the Commissioner (Appeals) decision, ruling in favor of the assessees by rejecting the Revenue's appeal. The judgment clarified that the assessees had not availed a double benefit by claiming both depreciation and credit on duty paid on capital goods/spares, as the subsequent year's Income Tax Return showed the deduction of the duty element, indicating that the depreciation had not been utilized.